Guide · 8 min read
Unit economics in plain words
Unit economics answers one question: do you earn money on each customer or each order, before fixed costs? If the answer is no, growth only makes the loss bigger. If yes, the question becomes how fast you can grow without running out of cash.
- Pick one unit: an order, a customer or a subscription
- Contribution margin per unit must be positive after all variable costs
- LTV should be at least three times CAC for a healthy business
- CAC payback shows how much cash growth requires
Choose the unit
For a shop the unit is an order. For a subscription business it is a customer over their lifetime. For a school it is a student. All costs that grow with the number of units are variable; everything else is fixed.
Contribution margin per unit
Price minus everything you spend on that unit: cost of goods, payment and marketplace fees, delivery, packaging, the share of ads attributable to the sale.
Average order $60. Cost of goods $27, marketplace fee and logistics $12, payment fee $1.20. Contribution before ads: $19.80. If ads cost $15 per order, $4.80 is left to cover rent, staff and profit.
CAC: the cost of acquiring a customer
Marketing and sales spend for a period divided by the number of new customers. Include sales salaries and bonuses, not only ad budgets.
LTV: what a customer brings over their lifetime
For subscriptions: monthly contribution per customer ÷ monthly churn. At $20 a month contribution and 5% churn, LTV is $400. For shops: contribution per order × orders per customer over the period you measure.
LTV/CAC and CAC payback
A common guideline is LTV at least three times CAC. Below that, marketing eats most of the value. CAC payback, CAC divided by monthly contribution, shows how many months it takes to get the acquisition cost back. Long payback means growth needs a lot of cash up front.
From unit economics to a full model
Unit economics is not enough on its own: it ignores fixed costs, the time it takes for money to return and growth limits. In FinModel the subscription and funnel blocks calculate new customers, churn and acquisition cost every month, and the dashboard shows how this turns into profit, cash and runway.